Merger Arbitrage (2^nd Ed.)
How to Profit from Global Event-Driven Arbitrage
Wiley Finance Series

Merger Arbitrage: How to Profit from Event-Driven Arbitrage, Second Edition is the definitive guide to the ins and outs of the burgeoning merger arbitrage hedge fund strategy, with real-world examples that illustrate how mergers work and how to take advantage of them. Author Thomas Kirchner, founder of the Pennsylvania Avenue Event-Driven Fund, discusses the factors that drove him to invest solely in merger arbitrage and other event-driven strategies, and details the methods used to incorporate merger arbitrage into traditional investment strategies.

And while there is always a risk that a deal will fall through, the book explains how minimal such risks really are when the potential upside is factored in. Early chapters of the book focus on the basics of the merger arbitrage strategy, including an examination of mergers and the incorporation of risk into the arbitrage decision. Following chapters detail deal structures, financing, and legal aspects to provide the type of in-depth knowledge required to execute an effective investment strategy. The updated second edition stresses new, increasingly relevant information like:

• Worldwide legal deal regimes
• UK takeover code
• UK takeover code global offspring
• Regulators around the world

The book provides clear, concise guidance on critical considerations including leverage and options, shorting stocks, and legal recourse for inadequate merger consideration, allowing readers to feel confident about trying a new investment strategy. With simple benefits including diversification of risk and return streams, this alternative hedge fund strategy has a place in even the most traditional plan. Merger Arbitrage: How to Profit from Event-Driven Arbitrage, Second Edition provides the information that gives investors an edge in the merger arbitrage arena.

Preface vii

Acknowledgments xi

Part One The Arbitrage Process 1

Chapter 1 Introduction to Merger Arbitrage 3

Chapter 2 The Mechanics of Merger Arbitrage 18

Chapter 3 The Role of Merger Arbitrage in a Diversified Portfolio 50

Chapter 4 Incorporating Risk into the Arbitrage Decision 103

Part Two Pitfalls of Merger Arbitrage 141

Chapter 5 Sources of Risk and Return 143

Chapter 6 Deal Structures: Mergers and Tender Offers 188

Chapter 7 Financing 217

Chapter 8 Legal Aspects 250

Chapter 9 Management Incentives 293

Chapter 10 Buyouts by Private Equity 328

Chapter 11 Minority Squeeze-Outs 341

Part Three Investing In Merger Arbitrage 361

Chapter 12 Government Involvement 363

Chapter 13 Four Ways to Fight Abuse of Shareholders in Mergers 409

Chapter 14 Investing in Arbitrage 435

Notes 475

About the Author 483

Exercises 485

Index 497

THOMAS F. KIRCHNER is a portfolio manager of the Quaker Event Arbitrage Fund, a mutual fund that uses merger arbitrage as one of its investment strategies.